Q34PGB - Horngren'S Financial And Managerial Accounting

Question

Preparing a standard cost income statement Review your results from Problem P23­33B. 

Middleton’s actual and standard sales price per mug is $5. Prepare the standard cost income statement for July 2018.

Step-by-Step Solution

Answer

Operating income = $106,340

Step 1: Meaning of Standard Cost Income Statement

An enterprise that utilizes standard cost bookkeeping, an accounting method based on standard costs instead of actual costs, must issue income statements periodically, like any other trade.

Step 2: Preparing a standard cost income statement

Middleton’s Standard cost income statement For the Month Ended July 31, 2018
Particulars	$	$
Sales Revenue at standard ($5/mug × 62,500 mugs)		$312,500
Cost of Goods Sold at standard (from P23-33B) $\left(62,500\times \mathrm{\$}1.04\right)$	$65,000
Manufacturing Cost Variances (from P23-33B):
Direct Materials Cost Variance                                 $(880)
Direct Materials Efficiency Variance                           (375)
Direct Labor Cost Variance                                        5,910
Direct Labor Efficiency Variance                                1,330
Variable Overhead Cost Variance                              (985)
Variable Overhead Efficiency Variance                         570
Fixed Overhead Cost Variance                                  6,643
Fixed Overhead Volume Variance                           (1,053)
Total Manufacturing Variances	11,160
Cost of Goods Sold at actual		76,160
Gross Profit		236,340
Selling and Administrative Expenses		130,000
Operating Income		$106,340